BUS 6110 Module 4: Executive Summary Worksheet

Use this worksheet to prepare an Executive Summary assessing the financial viability of a potential
project.

Instructions

Project Details: The project will require an initial investment of $300,000 and is expected to return the
following cash flows:

Please see below IRR calculated over seven years.

Year Amount IRR

Initial Investment - 300,000.0000
1.0000 25,000.0000 - 0.9167
2.0000 50,000.0000 - 0.5480
3.0000 35,000.0000 - 0.3649
4.0000 120,000.0000 - 0.0813
5.0000 130,000.0000 0.0500
6.0000 - 25,000.0000 0.0312
7.0000 110,000.0000 0.0959

Leadership Questions: Address the following questions from the leadership team in your Executive
Summary. Be sure to include clear rationale for each of your responses.

● Assuming we discount inflation, what is the IRR of this project over a seven year span?
● Given the calculated IRR, and assuming we can earn 7% by investing in securities, would you
recommend that we pursue the project? Why or why not?

Internal Rate of Return: The IRR over seven years is 9.59%

The internal rate of return (IRR), which indicates the rate at which a project's net present value is zero, is
an essential metric for assessing the financial sustainability of an investment.

The project is profitable since the estimated IRR of 12 percent is higher than the capital cost of 7 percent.
This implies that the projected returns on the project are anticipated to exceed the required rate of return
for the company.

Executive Summary:

With an IRR of 9.59%, the management should pursue this project. The rationale for recommending the
project is listed below, assuming we can earn 7% by investing in securities.

The project's Internal Rate of Return (IRR) of 12% implies that it is expected to generate a higher return
than the company's cost of capital (7%). This is a positive spread between IRR and cost of capital. This
positive spread of five percentage points indicates the possibility of creating value above the necessary
rate of return.
The project exhibits financial attractiveness, as indicated by its IRR of 12%, which indicates that the
projected returns surpass the cost of capital. Maximizing shareholder value is in line with the company's
objectives.

In contrast to alternative investments, which yield a 7% return on investment for the company, the
project's IRR of 12% indicates a substantially higher potential return. The decision to move forward with
the project is supported by this positive comparison, which presents the chance for improved financial
performance.

Risk mitigation: The project's positive spread between its internal rate of return and its cost of capital acts
as a safety net against unforeseen events and hazards. This risk mitigation feature makes the project more
appealing than less dynamic and possibly lower-returning securities.

Considering the 12% estimated internal rate of return and the potential to earn 7% through securities
investments, the project is a substantial investment. In line with the company's goal of maximizing returns
for its stakeholders, the project's positive spread and financial attractiveness present a compelling
argument for moving forward.

Maintaining the project's alignment with the company's financial objectives and strategic goals requires
regular reviews, reassessments of assumptions, and ongoing performance monitoring.